Build Better Credit Without Credit Cards

It’s a frustrating contradiction: You can’t qualify for credit without a credit history—and you can’t build a credit history without borrowing. Borrowing is the most common way to build a credit history, but it’s not your only option.

Use these tactics to demonstrate to borrowers that you’re a reliable credit risk:

• Put services such as utilities, cell phones, and cable in your name.
• Pay your bills, including rent, on time. Get into the habit of ignoring a 5- or 10-day grace period before a payment is considered late—instead, always pay on time or early.
• Have parking tickets or unpaid library fines? Pay them promptly and avoid getting any others.
• Use a checking account instead of cash or money orders—the key is to be able to verify your payment history.

You can also talk to an NCU loan officer about other forms of credit. For example, you may qualify for a secured credit card.

With a secured card, you pledge an amount of money to be held in a savings account, which sets your credit limit. You use the credit card and pay it back while leaving your savings in place. After a time, perhaps a year or two, during which you consistently meet your secured card payments, you ask to convert to a conventional credit card.

A similar option, if you qualify, is to ask for a secured loan. In this case, you receive the loan amount as a lump sum and repay the loan in monthly installments. Again, you’re demonstrating that you are a reliable borrower.

It may surprise you, but saving regularly in itself is a good habit to show a lender. It demonstrates that you can make a commitment to regular payments and also shows that you understand that saving comes before borrowing.

Many people borrow because they have no savings to fall back on when they have financial needs. If you are already a saver, you show that you are living within your means and saving for your goals.

All these habits together contribute to an “alternative credit history” that substitutes for your lack of a conventional credit record. If you have questions about how to become creditworthy, talk to an NCU loan officer.